U.S. Treasuries and related exchange traded funds (ETFs) may lose more ground as the U.S. government resumes its habit of borrowing.
Concern over the outlook of the U.S.’s AAA credit rating has caused the 10-year yields to rise above 3.4% for the first time since November, writes Susanne Walker for Bloomberg. The yield increased 0.32% last week.
President Barack Obama has increased the country’s debt to a copious $6.36 trillion. It is now estimated that the deficit for the year will be a record $1.84 trillion, or 13% of GDP.
While weakness in the U.S. dollar has made U.S. assets less desirable to foreign investors, the Central Bank has found data indicating foreign demand has not really fallen. The Fed’s custodial holdings of Treasuries for foreign accounts climbed up to $1.89 trillion and foreign holders bought up an additional $26.7 billion in Treasuries for the week ending on May 20.
The Fed bought $18.28 billion of U.S. debt this week and in a Central Bank policy meeting, officials have emphasized the need to boost asset purchases for an economic recovery. Neither events have deterred the rise in Treasury yields. Ten-year yields have climbed 0.92% since March 18 as the Fed promised to buy $300 billion in U.S. debt over six months.
- iShares Lehman 7-10 Year Treasury Bond Fund ETF (IEF): down 6% year-to-date
- PowerShares DB U.S. Dollar Bullish (UUP): down 3.1% year-to-date
- PowerShares DB U.S. Dollar Bearish (UDN): up 2.4% year-to-date
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.